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The governance, risk-taking, and performance of Islamic banks

Mollah, Sabur; Farooque, Omar; Hassan, M. Kabir; Al Farooque, Omar; Mobarek, Asma

Authors

Sabur Mollah

Omar Farooque

M. Kabir Hassan

Omar Al Farooque

Asma Mobarek



Abstract

We examine whether the difference in governance structures influences the risk taking and performance of Islamic banks compared to conventional banks. Using a sample of 52 Islamic banks and 104 conventional banks in 14 countries for the period from 2005 to 2013, we conclude that the governance structure in Islamic banks plays a crucial role in risk taking as well as financial performance that is distinct from conventional banks. Particularly, we show that the governance structure in Islamic banks allows them to take higher risks and achieve better performance because of product complexities and transaction mechanisms. However, Islamic banks maintain a higher capitalization compared to conventional banks. These results support the research on Islamic investment and risk taking. Our results add a new dimension to the governance research that could be a valuable source of knowledge for policy makers and regulators in the financial services sector.

Citation

Mollah, S., Hassan, M. K., Al Farooque, O., & Mobarek, A. (2017). The governance, risk-taking, and performance of Islamic banks. Journal of Financial Services Research, 51(2), 195-219 . https://doi.org/10.1007/s10693-016-0245-2

Journal Article Type Article
Acceptance Date Mar 15, 2016
Online Publication Date Apr 14, 2016
Publication Date 2017-04
Deposit Date Nov 23, 2016
Publicly Available Date Nov 23, 2016
Journal Journal of financial services research
Print ISSN 0920-8550
Electronic ISSN 1573-0735
Publisher Springer Verlag
Peer Reviewed Peer Reviewed
Volume 51
Issue 2
Pages 195-219
DOI https://doi.org/10.1007/s10693-016-0245-2
Keywords Corporate governance; Risk-taking; Firm performance; Islamic banks
Public URL https://hull-repository.worktribe.com/output/445521
Publisher URL http://link.springer.com/article/10.1007%2Fs10693-016-0245-2
Additional Information Authors' accepted manuscript of article published in: Journal of financial services research, 2017, v.51, issue 2. The final publication is available at Springer via http://dx.doi.org/10.1007/s10693-016-0245-2

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